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By Nathan Slaughter

As the saying goes, it's a dirty job, but somebody's got to do it.

With a fleet of 300,000 trucks, several hundred transfer stations, and approximately 27 million commercial and residential customers, Waste Management (WMI) is the nation's undisputed king of trash hauling. In fact, the firm controls around 40% of domestic disposal capacity.

However, as I have noted before, the company's crown jewels are its 280 solid-waste landfills. With mountains of garbage piling up every day, and miles of government red tape involved in obtaining permits for new landfills, this industry-leading collection of dumpsites serves as a powerful competitive advantage for Waste Management.

To improve profitability, the firm is currently trying to unload some of its lower-margin businesses and just sold its glass-recycling division for an undisclosed amount. Waste Management's core trash hauling operations are responsible for the bulk of the firm's $2.4 billion in annual operating cash flows -- a total that has risen sharply from just $1.9 billion two years ago.

With relatively modest capital requirements (capital expenditures run less than 9% of revenues), WMI has been able to unlock tremendous shareholder value with that cash. This has come in the form of stock buybacks and an above-average 2.3% dividend yield.

Waste Management's third-quarter results were recently announced, and they showed continued improvement. Per share earnings hit a solid $0.55 per share -- well above the average forecast of $0.48. It is nice to see that much of the earnings increase was due to decreases in operating costs. In fact, the company saved roughly $21 million over the same quarter last year in operating expenses.

Another pleasing aspect is that $425 million was returned to shareholders during the last quarter. This was comprised of $118 million in dividends paid and $307 million in stock buybacks. These actions show that WMI is making it a priority to create value for its shareholders, which is just the sort of characteristic any investor should look for in a company.

For now, despite running up roughly +20% so far this year, the stock is still trading nearly 30% below my $54 fair-value estimate. After watching the company closely in recent months, I believe now is the time to consider taking action -- particularly with a solid quarter being announced and most of the larger players in the industry successfully pushing through recent price increases.

Disclosure: The author holds no position in WMI

WMI 1-yr. chart

WMI investment

Source: Waste Management Inc.: No Waste For Its Investors